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To the problem of evaluation of market risk of global equity index portfolio in global capital markets

Ledenyov, Dimitri O. and Ledenyov, Viktor O. (2013): To the problem of evaluation of market risk of global equity index portfolio in global capital markets.

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Thinking about the development of the unifying mathematical approach to solve the problem on the evaluation of market risk of the global equity index portfolio in the highly volatile global capital markets, the authors focus their attention to an increasing necessity of application of the dynamic assessment of the financial systems with the use of the continuous system representation models, which allows to make the accurate characterization of the Returns on Investments (ROI) of the diversified global equity index portfolio. In our view, the creation of the complex computer models to accurately characterize the financial system’s operating modes results in ability by the investors to find the categorical behaviour properties of the financial system and to predict its dynamic properties precisely. In our opinion, in the periods of the challenging turbulent economic conditions in Bernanke (1995), the process of extraction of useful knowledge from the big streams of financial data from the various capital markets with the aim to make the virtuous investment decisions requires a deep understanding of the cognitive modeling techniques in application to the investment decision making as far as the global equity index portfolio is concerned. We analyzed the nature of the current financial and economic crises in the USA, presenting the views by the American business leaders, academicians and politicians, which were publicly expressed at The Economic Club of Washington in Washington, District Columbia in the USA. We highlighted the fact that it is important for the institutional and private investors to diversify their investments, and create the global equity index portfolio, aiming to increase the Return on Investment (ROI) and to accumulate the wealth in the course of the wealth management process at a global scale. Also, we considered the standard approach, which can be used to evaluate the market risk of a hypothetical global equity index portfolio with the Monte Carlo simulation technique, using the Student's t copula and the Extreme Value Theory (EVT) in Matlab (R2012). We proposed a conceptual framework, based on the suggestion that the application of the dynamic analysis of the nonlinear interactions between of the global capital flows can significantly leverage the effective investment control strategies in the researched case of the global equity index portfolio.

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